Status report June 2003 (.pdf)

3TATUS2EPORT*UNE

IT-ministerens forord

The Government presented its IT policy plan, eNorway 2005, in May 2002. The plan describes Norwegian IT policy targets and fi ve essential areas of commitment.

We pledged ourselves in eNorway 2005 to presenting regular status reports on IT development. This status report, the second in succession, presents statistics and fi gures through which a quali- fi ed evaluation of IT trends in Norway may be inferred.

Even though the dotcom bubble has now defi nitely burst, de- velopments in IT have by no means ground to a halt – neither in Norway nor abroad. Norway is a global leader in IT accessibility, even if a number of international surveys conclude that Norway is losing ground in terms of exploiting IT to its full potential, which is the impetus for drawing up an eNorway Strategy and subsequent Status Reports. These reports are designed to explain where we want to go and where we stand today, as well as to inspire us to work harder.

A status report such as this should therefore be regarded as a working document aimed at generating high levels of activity. In many aspects, we have a good point of departure – but the real challenge here is transforming these advantages into tangible gain.

The report contains a new feature: in-depth focus on a specifi c area of commitment, and this status report takes a detailed look at the education sector this time. Over the past four years, the sector has received more than NOK 1 billion in government fund- ing to boost IT education. What has this achieved? We will take a closer look at how the money has been spent, at where things stand today and which goals we have for the way ahead. The report also features an article written by the Norwegian Minister of Education and Research, Kristin Clemet, on the future direc- tion of IT education, and an article penned by Professor Sigmund Lieberg on some of the challenges facing us now. Although we commissioned Professor Lieberg to write the article, his opinions are his own!

As a link within the eNorway Plan, the Government has estab- lished an ePartner scheme, aimed at promoting collaboration and encouraging an open exchange of ideas between private-sector and government institutions, all with a constructive role to play in shaping the eNorway of the future.

We have received invaluable contributions in this respect, such as from Abelia, which underlines the need to foster more innovation in Norwegian industry, The Norwegian Confederation of Busi- ness and Industry [NHO], which focuses on the signifi cance of IT as the driving force behind innovation in small businesses. And eForum raises the issue of consumer rights. A number of these contributions are included in this report, although they represent

the companies’ own opinions. However, these refl ect aspects of the proposals and comments supplied along the road to bringing eNorway to fruition.

Oslo, 23 June 2003

The ePartner scheme is designed to promote collaboration and the exchange of ideas between enterprises involved in shaping the future of eNorway

— private-sector and government institutions which radiate energy and are a source of inspiration for others in the process of creating a digital knowledge society for everyone. The ePartners consist of the following:

Abelia

Alta municipality BankID collaboration Brønnøysund Register Centre Datakortet as

eForum ICT Norway IT CoE, in Halden LiNK

National Council for Norwegian Children’s and Young People’s Organisations [Landsrådet for Norways barne- og ungdomsorganisasjoner]

NorStella

Senior Citizens’ Network [Seniornett]

The Norwegian Computer Society

The Norwegian Confederation of Business and Industry [NHO]

The Norwegian Farmers’ and Smallholders’ Association [Norsk Bonde- og småbrukerlag]

The Norwegian Labour Directorate (Aetat)

The Norwegian Mapping Authority [Statens kartverk]

The Norwegian University of Science and Technology [NTNU]

Årdalsnett AS

Innhold

SYMBOLSUSEDINTHISREPORT

Each target and principal observation is assessed in relation to a simple scale. The symbols indicate the degree of progress in achieving these targets, but must not be regarded as fi nal and absolute.

Progressing well – Progress is excellent, and/or Norway is leading the fi eld internationally.

Mixed progress – Progress is being made, but a number of obstacles and problems could slow things down.

Some way to go – Norway does not have a leading position and/or not much progress is being made in this area at present.

Foreword by the IT Minister 2

Contents 3

Summary 4

Background 6

1 A good framework for eNorway 7

Modifi ed and updated regulations IT as a basis for value creation

Relatively few companies exploiting e-commerce potential Mutual dependence between internationalisation and research

2 Accessibility and security 12

Norway with good access to traditional telecom and broadcasting infrastructures Rapid development in the broadband market although not covering all of Norway The introduction of electronic signatures proceeds more slowly than expected Cultivating a culture of security takes time

3 Skills for change 18

IT in Norwegian education – overview and analysis IT in higher education

Plans – key activities IT as a catalyst and instigator

IT in education – a critical perspective 24

IT in education – some challenges 26

Norwegians are skilled IT users, although some demographic variation exists

4 Attractive content 28

Good demand for content, but limited production of unique electronic content Digitisation of the content market

The State is a major contributor of content Children living their own lives online

5 A modern public sector 31

Great potential for improved organisation and boosted effi ciency Most government agencies off er simple electronic services Easing reporting burdens on industry

Public procurement still in the initial phase

Sammendrag

In comparison with other European countries, Norway enjoys a strong position in many areas of IT development.

Norway’s domestic market is small with numerous small enterprises posing major challenges in terms of the level of skills necessary to deploy the new technologies. Building such a complex infrastructure in a country with vast distances between the north and south is a huge task. But we are still left with the impression of not always managing to reap the potential rewards from calculated application of technology.

Considerable eff ort has been poured into modifying regulations to ensure that traditional and electronic forms of communication are predominantly equal in legal terms. Looking ahead, it will be important to make sure that both industry and the general public are aware of these amendments.

There is every indication that IT impacts the economy from a macroeconomic perspective. During the 1990s, the growth in productivity for mainland Norway’s economy was on a par with the US. Growth was particularly high within private provision of services such as commodity trading and domestic transport. The same is presumed true of the banking and insurance industries.

Deployment of new technology is one of the main reasons for this growth. However, much of the wealth generated by IT in the form of cost savings and improved services is diffi cult to account for statistically.

Many consumers shop online. However, the proportion of Norwegian companies that have sold goods or services online is lower than in comparable countries. This could be due to a lack of skills and a diff use industry structure.

The vast majority of exported IT goods are delivered

electronically, although the sales process is hardly ever carried out entirely online, partly because of the demanding nature of sales work. Norwegian IT companies are typically either fi rmly entrenched within their local neighbourhood or else they are global companies. The degree of R&D work and level of skills are crucial factors that aff ect an IT company’s export and competitive capabilities. Export-oriented IT companies have kept their research competitive, although the overall investment in R&D for IT remains lower than in other Nordic countries. Traditional

trade barriers have less impact nowadays, in fact, than investment barriers and technical trade barriers.

Following fi ve years of teleliberalisation, most niche markets are still dominated by Telenor, although the number of competitors

is steadily increasing. Industry has certainly gained much from teleliberalisation, although the impact on regional Norway and low-income groups is still uncertain. Phone calls are cheaper, but subscription charges are more expensive.

After getting off to a slow start, the broadband market has been making marked progress, but there are still regional variations in service and quality. 25 per cent of Norwegian households connected to the Internet are expected to have broadband soon. For local authorities, libraries and schools connected to the Internet, the situation varies but seems to be improving.

Most health enterprises and institutions have broadband connection and the health-care Internet provider, Helsenett.

Norway has lower coverage and higher prices for broadband than the other Nordic countries. However, there are fewer diff erences than in the past.

As in many other countries, the process of introducing electronic signatures is progressing more slowly than expected. There are only two e-signature providers currently on the market, although there are a number of users. In May, Rikstrygdeverket [the National Insurance Service], launched a national roll-out of PKI- based e-signatures for the health sector.

It takes time for security concerns to become second-nature. The overall outlook as regards security threats has remained quite stable, in spite of a more unstable world situation. Consumers have more problems tackling viruses than companies do.

Academic institutions, with authentication schemes and training in IT security, are either in place or are about to be launched. The Government approved a national strategy for IT security in May.

1. A good framework for eNorway

- Electronic and traditional communications are predominantly on an equal legal footing - IT-intense industry is enjoying sound growth in productivity.

- IT export companies are experiencing a healthy rate of research activity

- Industry has good access to technology.

- Less use of new information technology in business than in competitive countries, e.g. e-Business - Lower investment levels of research both in industry and the public sector in comparison with the Nordic countries.

2. Accessibility and security

Good access to an electronic infrastructure - Broadband roll-out is increasing

- Many security measures have been initiated, but some unresolved problems remain.

- Access to infrastructure varies according to geographical location.

- Many niche industries are experiencing problems with the present competitive situation, although this appears to be improving

- Increased – but continued low-scale – use of electronic signatures.

During the past four years, the Government has invested more than a billion Norwegian kroner in IT in the education system. This is in addition to local investment. Vast sums have been poured into boosting IT skills for teachers, educational facilitation and R&D projects. We are at the forefront of developments providing pupils with access to IT, particularly at sixth-form level. There is still much room for development as regards the number of PCs at elementary schools. An increase in schools’ IT eff orts is crucial, particularly for children who have no Internet access at home.

IT deployment is generally high within the Norwegian population, although there are disparities in gender, age and geographic regions. Such variations are often linked to ability, skills and the willingness to deploy these technologies.

There is much demand for electronic content, although there is limited production of unique electronic content. The main focus of the market is still on wrapping existing content digitally.

The Norwegian content market is dominated by a few, well- established media houses. Despite that fact, there is a good variety of languages.

The electronic content market has grown. More micro payment solutions have been developed, although the usage level remains uncertain. The media’s revenue base is increasingly derived from the sale of electronic services, particularly from banner adverts.

Online advertising shows strongest growth in the largest media and is on the verge of becoming the fourth largest advertising medium after television, daily newspapers and weekly magazines.

Government agencies are important content providers.

Reports on children’s use of the Internet reveals wide

discrepancies between children’s actual use of the Internet and their parents’ misguided impressions.

Many children have seen pornography or violence on the Internet, or have been asked if they would like to meet people they have only met in chat rooms.

Undesired mass spam e-mails still present a growing problem.

There is tremendous potential for making the public sector’s task-solving more effi cient through electronic solutions. There are countless examples of good IT initiatives, although progress has been slower than expected. International rankings show that Norway is no longer at the cutting edge of developments. Only seven government agencies and three local authorities are able to off er fully-integrated electronic services. Most have developed simple interactive services, and many of these can provide more advanced services tailored to individual needs.

More widespread initiatives such as reporting data to government agencies (AltInn) and the establishment of a national health network could improve matters. Electronic submission of tax assessments show that new user services make life simpler and boost effi ciency. To what degree the public sector will be able to reap the benefi ts from introducing electronic services remains unclear, even though the public is ready for new services to a large extent. Public procurement is still in the initial phase. There are still issues to resolve as to how to reach less resourceful users. A new strategy for IT in the public sector was presented in February.

3. Skills for change

- Norwegian schools are well equipped, particularly at sixth-form level.

- Norwegian pupils spend less time on IT than in other Nordic countries.

- Good levels of education in pure IT, although other basic subjects and a drop in applications lowers standards.

- Skills in IT, organisation and e-Business operation are not adequately developed everywhere yet.

- Disparities in IT skills levels, particularly linked to age, but also to gender and geography.

4. Attractive content

- Rapid growth in commercial advertising - Broader choice of languages

- Active user groups for Norwegian content - SMS content services still under development - Many popular Norwegian content services, but low

production of unique digital content

- The content market is dominated by a few major players

- Children are exposed to undesired content - Undesired e-mail (spam) is becoming a problem

5. A modern public sector

- Specifi c high-profi le projects - People request electronic services

- Basic interactive services are generally widespread - Making many peoples everyday life simpler

- Many enterprises are providing better services - Few enterprises have integrated services

- Electronic procurement is still in its infancy - Electronic services do not reach frequent and demanding users

Bakgrunn

eNorway 2005 was fi rst presented in May 2002 and contains the Government’s general IT policy for the coming years. The Government has formulated three primary targets for its IT policy:

Creating value in industry

The expansion and use of information technology shall help create value through enhanced innovation and competitiveness in Norwegian industry.

Effi ciency and quality in the public sector

Information technology shall be used to make the public sector more effi cient and to off er new and improved services to users.

Involvement and identity

Everyone shall be able to benefi t from the potential of

information technology, and IT shall play a role in preserving and promoting our heritage, identity and language. eNorway 2005 is directing its attention towards achieving its primary goals (centre of the fi gure below):

The Government shall establish good framework conditions for eNorway by keeping its regulations up-to-date, providing good fi nancial schemes and facilitating IT innovation and research.

The framework shall not favour any one particular technology, and the Government shall do its utmost to engender thriving competition.

A further key requirement involves accessibility and security in information systems, services and the Internet. The Government shall be a driving force in broadband roll-out and the introduction of electronic signatures. This also includes encouraging free competition among telecom providers, ensuring access to basic telecom services throughout Norway, and securing information

systems. As progressively more areas of society are starting to deploy electronic systems, the need for access is becoming more essential parallel to rigorous tightening of security requirements.

Skills constitute a critical prerequisite for deploying IT technology – whether by industry, the public sector or private individuals.

This concerns both technical expertise and user skills. The Government must do its part to guarantee access to a skilled workforce.

The Government will encourage increased access to attractive content, localised to Norwegian conditions. Public sector electronic content shall be more user-friendly and easier to access. The Government is also obligated to digitize Norway’s national heritage and make it more easily accessible. It will also help combat illegal and harmful content

IT deployment constitutes a key asset in the creation of a modern public sector, one that is both cost-eff ective and capable of providing new and improved services. The Government’s role is as a key market player, capable of vitalizing development and demands for IT-related products and services.

1 Gode rammebetingelser for eNorge

Targets:

- Electronic and traditional services shall be placed on an equal footing, and regulations shall remove any obstacles impeding electronic communication.

- A framework shall be put in place for exploiting the potential for value creation by means of full IT implentation.

- A good framework shall boost the use of electronic commerce in and between enterprises.

- IT shall be given high priority in the intensifi cation of Norwegian research, and the ensuing results shall be commercialised as far as possible.

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The ”eRegulation Project” [eRegelprosjektet] has enabled the Government to review regulations to remove any legal obstacles to electronic communication. The project has yielded the desired results. A report from Agderforskning¹ points out that the major

“legal obstacle” at present is unfamiliarity with amendments to legislation governing electronic commerce. The eRegulation Project has been concluded and is now being mappped by the VideRe Project under the auspices of the Ministry of Trade and Industry. The Project has a special e-mail address for reporting any impedimentsto electronic communication.²

Amendments are constantly being made. to regulations|, e.g.

relating to copyright and access to government data. However, discriminating legislation is prevalent in certain areas, and other framework conditions, all of which adversely aff ect the competitiveness of electronic publications. No complete list is available of the extent of and impact of this kind of diff erence in treatment.

With reference to incorporating the EU’s Directive on copyright in the Information Society³ in the Norwegian Act on intellectual property rights, the Ministry of Culture and Church Aff airs has suggested extending the wording to include simple clarifi cation on the scope of the Act on intellectual property rights (agreement concession) to apply within the area of digital media. A similar procedure has also been proposed for the re-use of protected material from the Norwegian Broadcasting Corporation archives. The right to copy material solely for private use will be maintained, but any reproduction must be carried out in a manner deemed not unreasonable with regard to the copyright holder. The Directive also demands that it be made illegal to break an electronic seal in order to copy the material. This prohibition will not, however, inhibit normal use of electronic equipment.

A key element in improving the government’s role as an

information provider will be to secure harmonised regulations on access to public informasjon, including pricing in this instance.

One aspect of this means that initiatives prompted by the recently presented White Paper on map and geodata.⁴ Implementation of the forthcoming EU Directive on public information will call for a fundamental review of regulations within this fi eld.

Technology and market trends have revealed the need to update and change the wording in current Norwegian regulations on electronic communication, including here the Act on telecommunications, and will encompass the entire area of electronic communication. A new act on electronic communications will come into eff ect on 25 July 2003, and will yield the means necessary to strengthen competition and reassure Norwegian industry that the regulations have been harmonised with the EU Member States’ legislation.

As far as the general implementation of EU regulations is concerned, Norway ranked second on the ESA’s scoreboard in May 2003.⁵ We have delayed implementation of 0.7 per cent of the EU’s legal acts, and thereby meet the EU’s target of lying under 1.5 per cent. Only Denmark is higher on the list. This is an improvement from fourth place and a 1.0 per cent delayed implementation in November 2002.

IT

Predictions for the global economy’s growth rate are even lower this year than previously anticipated. Unemployment is escalating in many countries. The Norwegian economy has suff ered from weaker trends than forecast before in the Norwegian National Budget for 2003. Falls in competitive expenditure have been partly the cause of losing market shares in Norway and abroad.

There is every reason to believe that investments in IT have had an impact on the economy, which is also noticeable from a macroeconomic perspective. The OECD calculated that Norway experienced growth in the total factor productivity (TFP)⁶on a par with the US during the latter part of the 1990s. The USA was singled out during the same period as a country where intensifi ed IT deployment was a factor in boosting productivity. According to the latest productivity calculations from Statistics Norway, trends within private sector service provision, particularly within commodity trading and domestic transport, are responsible for a rise in the TFP growth in mainland Norway over the past decade.

1 ”Electronic commerce – Obstacles and Action”, Agderforskning, December 2002.

2 Obstacles can be reported to the following e-mail address:

[email protected]

3 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society

4 Govt. White Paper no. 30 (2002-2003)

5 Internal Market Scoreboard

6 The proportion of production growth which cannot be attributed to an increase in the expenditure of resources such as workforce and capital is expressed as growth in the total factor productivity. This is usually what is meant when the term growth in productivity is used.

In addition, exploitation of new technology constitutes a further reason for this growth.

The banking and insurance sector has not been included in the table due to its being diffi cult to gauge accurately. This is an area in which IT is considered to be of major importance.

Investment in IT yields substantial growth in productivity without appearing in available economic statistics, for example, if the fi nance industry were to experience a sharp rise in product development as a result of implementing new technology and new distribution methods. Bank payments have become rationalised, online banks have seen a huge surge in new customers and the new technology has facilitated the deployment of new and effi ciency-enhancing solutions for industry. However, we are also well aware of the fact that statistics at best measure banks’ savings in expenditure and not the increase in welfare on the part of consumers.

Entrepreneurship

The survey, Entrepreneurship in Norway/Global Entrepreneurship Monitor 2002, ranks Norway as 14^th in the world in terms of creating new technology.⁹ The survey suggests that there are problems associated with social approval of entrepreneurship, access to government funding/loans, equity, political

prioritisation of entrepreneurship as well as higher educational levels in new technology and management. Norway’s strength is seen to lie in its regulations, physical infrastructure, tax rates, informal investors, framework for women setting up their own business and its spirit of free enterprise.¹⁰

A survey conducted for the period 1999-2001 shows that 13 Norwegian companies were among the 100 fastest growing technology companies in Europe. Norway was the runner-up behind the United Kingdom with 24 companies. Nine of the 60 fastest growing companies were based in Norway.¹¹

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Norwegian players do not seem to be exploiting the potential of electronic commerce. Figures from Statistics Norway show that 13 per cent of Norwegian companies generated sales through using electronic commerce in 2001. The proportion of Norwegian companies buying or selling products online is lower than in other countries, in spite of ready access to IT. Figures from an EU survey conducted in 2002 on electronic commerce and SMEs¹² showed the following:

• Norway is the country in the survey in which the highest number of companies have made purchases through using e-commerce

However:

• Norway scores low in terms of the volume of goods or services sold online

• Norway scores signifi cantly lower than, for example, Sweden and Denmark, in terms of the number of companies that have Internet access and their own home page.

7 Not including property, banking and insurance and oil refi ning.

8 Interim data for 2001 and 2002.

9 Handelshøgskolen i Bodø: “Entrepreneurship in Norway 2002” / Global Entrepreneurship Monitor (GEM) Norway Report.

10 See Status Report on eNorway, January 2003 for a more detailed explanation.

11 DeLoitte & Touche: European Technology Fast 500, December 2002.

12 Final benchmarking report on national and regional policies in support of e- Business for SMEs, Enterprise DG, European Commission 28 June 2002

eNorway as a value generator within industry

The eNorway plan is designed to promote value creation in Norwegian industry, partly through initiatives described in the chapter entitled “Good framework conditions for eNor- way.” Abelia has a keen interest in this vital area because IT companies, facing strong competition, rely on a framework that is at least as beneficial as in other countries.

Abelia is pleased with some of the changes in industry policy that have evolved in recent years. Tax incentives for industry and a restrictive budget policy are important for the IT and knowledge-based business sectors. We are also happy that industry-oriented research has been given a well-earned boost with an in- dependent IT research strategy drawn up, which could help lay the groundwork for favourable conditions for Norwegian exports and trade and industry in the future. We are also pleased that an independent IT strategy has been compiled for the public sector, which prioritises the introduction of electronic signatures and simplified data reporting procedures for enterprises to submit electronically to the government.

Nevertheless, Abelia is concerned that Norway is lagging behind other countries in terms of IT-based value creation, and is particularly keen on improving results within the following areas:

– Calls for more innovation within Norwegian industry and for more new research-based companies. Incentives and funding schemes must be geared towards underpinning commercialisation and innovation.

– Less R&D in Norway than in other countries, thus leading Abelia to expect a surge in IT research as a factor in the necessary expansion of Norwegian research efforts.

Table 1 Changes in the total factor productivity (TFP) among companies in mainland Norway⁷ during the period 1982-2002⁸. The average percentage of annual growth rates.

1982-1988 1989-1996 1997-2002

Agriculture 0.5 3.2 0.4

Forestry 2.4 3.4 1.4

Fishing -1.7 6.6 1.4

Aquaculture 4.5 5.5 1.9

Production of consumer

goods 0.0 0.2 0.3

Production of intermediate consumer and investment products

0.1 0.3 -0.2

Timber processing 1.6 1.5 0.7

Chemical raw products 1.9 0.8 -0.5

Production and refi ning of

petroleum products etc. 0.1 -0.3 1.3

Metals 1.6 0.6 0.2

Production of workshop

products 0.5 0.6 0.4

Construction of ships and oil

platforms 1.1 -0.2 0.2

Building and construction 0.4 1.5 -0.8

Power generation -0.9 1.2 3.5

Domestic transport 1.3 2.5 1.4

Commodity trading 1.4 3.6 3.9

Other private-sector

provision of services -0.3 -0.3 0.6

Mainland Norway in total 0.7 1.4 1.1

Source: Statistics Norway, adapted by ECON

The report “Electronic commerce – Obstacles and Action” from Agderforskning¹³, concludes that the lack of skills is one of the greatest barriers to the use of electronic business and commerce in Norway. This is consistent with surveys conducted in other countries. Other major obstacles that were identifi ed included a lack of adaptation skills, standardisation and information surrounding legislation and regulations governing electronic commerce.

The whole industry, pressure groups and players in both the private and public sectors are directing their focus on activities to promote electronic commerce, e.g. through skills building.

Since the end of 2002, the number of companies completing the e-strategy processes using tools contained in the Industrial and Regional Development Fund’s (SND) ”Verdiprogram”¹⁴ [Value program] ) has doubled (400 as at June 2003). The SND’s E-barometer is a new and simple tool which SMEs can quickly use to test their company’s maturity in relation to e-Business development and electronic business environments. The aim of the E-barometer is to help companies get going with more profi table IT utilisation to aid them in their business processes.¹⁵ The EU recently carried out an analysis of electronic commerce, focusing on 15 diff erent sectors. This report, the European e- Business report, 2002/2003 edition¹⁶ does not include Norway, but shows trends in Europe, which are vital to us as well.

The report indicates that there is generally a positive climate for electronic commerce, although not enthusiastic. The report also points out that electronic commerce has a signifi cant bearing on customer/supplier relations, internal work processes and organisational structures. This corresponds well with fi ndings from a number of Norwegian reports. A challenge for the future still remains, involving the integration of electronic commerce with business models as well as value chains, and being able to publicise good examples and potential gains.

An electronic marketplace is an application for use in promoting electronic trade and commerce. However, the actual use of marketplaces is rather limited at present, and the lack of user skills is a major impediment to its use as well.

Consumer demand

Consumer demand for online shopping in Norway is good.

According to surveys conducted by TNS Gallup, 56 per cent of Internet users had ordered products and services online once or twice. Out of these, 44 per cent had purchased something online over the past 30 days. Books, trips, IT equipment and clothes are still the most popular products purchased online. Flights purchased online amount to 84 per cent of trips booked online.

A survey, which was conducted by MMI for the foundation eforum.no in February 2003 revealed that while 690 000 people a month purchased products online each month during Q4 2002 (within all product categories), more than 600 000 Norwegians surfed the Internet to have a look at holidays before buying it over the telephone or at a travel agency. Seven per cent said that they had attempted to purchase something online over the past month, but broke off and cancelled the purchase with the most common reason given for this as technical error and complicated payment solutions.

The most common methods of online payment were stable i.e.

approx. 45 per cent pay by giro and approx. 30 per cent by credit card. Simplicity is the key criterion when selecting a method of payment. When asked in February 2003, more than half the

13 Commissioned by the Ministry of Trade and Industry in autumn 2002, www.eNorway.org.

14 SND’s work on its Verdiprogram is designed to guide companies’ skills development so that they can exploit information technology.

15 The E-barometer is available from SND’s website www.snd.no/utviklingsverktoy, cf e-analysis

16 www.ebusiness-watch.org

eNorway: A vital component in the all-inclusive innovation policy

The greatest challenge confronting Norwegian companies is their need to be more competitive, particularly through in- novation-based growth. eNorway is an invaluable asset in this respect.

We are faced by two major challenges; first, small companies exploit IT far less than they ought to; and secondly, Norway’s vast geographic infrastructure represents huge challenges. IT can be looked at from a number of angles:

1. A key factor in achieving innovation processes throughout Norwegian industry

2. The IT industry keeps its own high pace for innovation and growth 3. Simplified data reporting to government agencies which makes more time available for value creation

The introduction of e-procurement and broadband roll-out demonstrates positive trends, although this must be carefully followed up.

NHO believe first and foremost that IT can be instrumental in boosting in- novation within the Norwegian economy through implementing the available technologies at established companies. This will yield a strategic effect and will moreover result in growth within the Norwegian IT industry in line with a increas- ingly demanding domestic market

IT’s role as a momentum to inspire innovation at small companies is particularly challenging for Norway. Boosting skills is crucial within small businesses which constitute the mainstay of Norwegian industry. A government funding scheme should be initiated to support businesses in addition to their own work within this area. (BIT, Verdi etc).

Figure 1 Percentage of companies in the EU purchasing and selling online. Source: e-Business Watch 2003

population of Norway replied that transaction security is either extremely good or quite good.

During 2002, 82 million bills were paid through online banking.

This denotes a sharp rise by 33 per cent compared to 2001 and this method of payment has now become more popular than paying bills by posting completed bills through a “brevgiro”

agreement with a bank¹⁷

According to TNS Gallup, forecasts for online shopping are bright.

53 per cent of people having used the Internet over the past 30 days say that they will purchase something online during the next 12 months. Books and trips seem set to be the most popular articles for next year as well.

M

A study carried out by the NUPI [The Norwegian Institute of Foreign Aff airs] on IT export companies revealed that only 3 per cent of exports occurs through e-commerce, although a signifi cant proportion of IT products are shipped electronically.¹⁸ The scope of electronic shipping keeps transportation costs low for IT companies.

Around half the companies believe that e-commerce will become more important, although just as many have less faith in it.

Research-intensive companies have more faith in e-commerce, although the opposite is true of companies with a vast sales network. In other words, faith in e-commerce does not hinge on sales work made a high priority. However, whether this is owing to e-commerce solutions requiring special R&D work, or not the case because the robust sales organisation has a more “realistic”

approach towards the potential in e-commerce, or perhaps they just feel threatened by trade devoid of personal dealings, is not answered in the study.

On average 60 per cent of IT companies have fewer than 10 customers in each foreign market. The average company spent 10-40 working days a year on selling to a typical foreign client in an export market. When sales call for such a huge eff ort, many dealings are diffi cult to explain through standard order forms submitted online.

”Locals” and ”globals”

The NUPI survey revealed a clear divide between “locals”, with an extensive domestic market and exports solely within their local area, and “globals”, which operate on a global market and consider the Norwegian market to be of little signifi cance.

Small companies with large R&D facilities dominate the latter, whereas high, fi xed costs incurred on sales outside the local area tend to encourage a “local” sales pattern for most others. The caricature epitomising the IT market as a “global supermarket”

is only the case for specifi c niche markets. More often than not, internationalisation of IT entails extremely high fi xed costs.

Opposites attract for internationalisation and research?

Some media reports on the NUPI’s study seem to be making an issue out of the relation between investment in a sales network and R&D investment. The study, however, provides no foundation for these conclusions. This shows quite clearly that R&D, in-house training at companies and education are crucial for export and competitiveness. The study goes on to say that some companies on the committee experience the weaknesses in their sales system proves more of a bottleneck than any weaknesses from R&D activity. However, this does not mean that R&D funding is wasted, but is rather an argument to look at the connection between R&D commercialisation.

17 These fi gures are derived from the Bank of Norway’s annual report on payment systems in 2002

18 “Born global or local? Technology, market structure and export performance in the IT industries” (Melchior and Øi, 2003) The study is based on data on internationalisation collated from 110 Norwegian IT companies (excluding telecoms).

Starting in autumn 1999, eforum commissioned MMI (opinion poll) to track e-commerce trends.

The study shows a rise in e-commerce deploy- ment, both in terms of the number of users and turnover in NOK. However, the survey is still unable to confirm that the market can function properly independently.

Internet shops form part of a retail chain. There is a need for standardisation work, logistics for the supply chain, PKI (public key infrastructure), effective payment solutions, adaptation to enable correct registration and the use of personal data.

- Individual Internet shop sales and profitability cannot be linked directly to positive market trends on account of the following:

- Foreign trade constitutes less than 40 per cent. We estimate that a rise in sales generated by this user group, mainly in the games and pornography areas

- The sales figure per transaction is growing, but still only by a small margins.

Fall in profitability due to investment costs, substandard purchases and squeezed margins.

Progressive companies make an important contribution and deserve to be listened to and accommodated. Provision must be made for transferring skills and knowledge across physical and virtual networks. SMEs should receive incentives to invest in e-business solutions and improve employee awareness and skills within this field. eforum has developed a web solution designed for networking and is working towards setting up a project which could help the eNetwork become a reality.

Favourable consumer rights will force Norwegian companies to become more competitive. Companies taking trust and security seriously deserve notice and will subsequently dominate the market over less professional companies. It is vital to facilitate a good flow of information on consumer rights, amendments to legislation and recommended guidelines for running web shops. Nsafe are currently active in this area and should receive more focus and funding during its establishment phase.

Figure 2 Percentage of companies regarding themselves as

“local” or “global”. Source: NUPI

On average, IT companies have major fi xed costs in the case of sales. These are somewhat less than IT companies’ R&D investment costs. The study shows that companies with a good sales system manage better facing international competition, and that some companies that do well on the technology side don’t do enough on the sales side. The study concludes by pointing out that export-oriented companies do not skimp on the R&D, but rather the opposite.

Other studies, such as the international assessment, conducted by the Norwegian Research Council, of Norwegian government IT research,¹⁹ have, however, confi rmed a generally low level of investment in Norwegian IT research and stressed that increased funding could yield an exceptionally good return on investment.

Many of the research groups, which are awarded the best marks, are more involved in the theoretical side of the IT (information studies). There are few others which are within the technology fi elds in which Norwegian industry has the greatest need for IT skills.

Even though Norway generally manages best in the naturally sheltered areas of the IT industry, the study confi rms that there are IT market segments in which Norway does well on an international arena. R&D, pay fore and access to a qualifi ed workforce, as well as in-house training at companies, are defi nitely the most important aspect here on the plus side. But the negative fl ipside is access to capital.

The study also contains a number of results with more specifi c implications for the policy.

- There are weaknesses in the way Norwegian equity markets operate, and this should be discussed to see if anything can be done.

- The fact that a number of companies are strong on technology, but weaker on sales, could imply that funding awarded to commercial R&D ought to be granted on the basis of sales plans.

- For IT companies, and perhaps service companies in general, traditional trade barriers (customs duty etc) are less important than e.g. investment barriers and technical trade barriers.

19 ISBN 82-12-01772-9

Targets:

- Norway should have a robust, eff ective and universally accessible infrastructure for electronic communication based on eff ective competition.

- The market should provide good access to broadband in all parts of the country. During the course of 2005, all primary and lower secondary schools, public libraries and local authority administrations should be able to access broadband at

competitive prices. All upper secondary schools should have such access by the end of 2003.

- No later than the end of 2005, the groundwork will be laid for the general use of standard-based electronic signatures.

- A culture of security shall be developed in connection with the use and development of information systems and electronic communication.

- Important electronic communication infrastructure should be robust and secure, and critical information systems should be able to be secured to minimise the consequences of operational interruptions.

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telecommunications market was opened up to competition and many new players have established a presence in the market. As of 22^nd April 2002, the Norwegian Post and Telecommunication Authority had registered a total of 84 providers of public telecommunications networks, public telecommunications service or transmission capacity.

There are a limited number of providers of separate infrastructures, i.e. players who primarily sell transmission capacity within:

• Transmission networks – the “main routes” of the networks, consisting of nodes and the connections between these.

• Access networks (connection networks) – the last link in the connection of the network between the individual end user (local authority administration, company, household) towards to a node with a connection to one or more transmission networks.

The most important access network technologies are the earthbound telecommunications networks, satellite systems, cable networks, mobile telephone systems and broadband wireless systems.

The vast majority of players however are pure service providers that provide and sell services. These players depend on being the purchase of network capacity in order to provide their services. The obligation to grant access to existing network resources has been a prerequisite when it comes to enabling new providers to establish a presence in the market and off er services in competition to Telenor. Competing providers currently have access to the exiting infrastructure view access to the fast access network (local loop unbundling), synchronized traffi c, special network access, mobile communications networks, and transmission capacity (leased connections).

Figure 3 Market share, selected areas and companies. The Norwegian Post and Telecommunications Authority, October 2002

After fi ve years with a deregulated telecommunications market, Telenor still holds a dominant position in the traditional telecommunications market. It is estimated that in 2002 Telenor had an overall market share of around 71 per cent of the end user turnover in the Norwegian telecommunications market. The thresholds small players have to cross in order to establish a presence are high, partly as a result of factors relating to economies of scale in the telecommunications market.

Developments in the market have shown however that it is possible for Telenor’s competitors to capture market shares and that these market shares are increasing.

Two providers have constructed nationwide networks for public mobile communication. As of 2002, both mobile communications networks supported GPRS and high-speed data transmission for the wireless Internet. As per 01.06.2003, neither of the two concession owners (“wireless broadband” off er commercial UMTS, however both concession owners are in the process of rolling out such networks. Two new concessions will be auctioned off during the course of 2003.

In 2002, there were approximately 840,000 cable TV subscribers in Norway, of which around 52,000 had their broadband and around 21,500 their telephony services delivered over the cable TV network. ²⁰

There are two large suppliers of digital satellite services in Norway, and 73-98 per cent of the population are currently able to receive digital TV via satellite. Canal Digital, owned by Telenor, is the largest player within digital satellite and is estimated to have 11 per cent of Norwegian households as customers²¹. The other large player is ViaSat.

A consequence analysis from 2003 shows that the deregulation of telecommunications has impacted the prices of diff erent user groups diff erently²². Telecommunications prices sank most prior to deregulation, while some prices have increased after deregulation, especially fi xed charges and call connection fees.

It has become more expensive for users to own a telephone, but cheaper for them to use it. Higher income groups have ended up with cheaper services while lower income groups have ended up with more expensive services. The increase in costs has been particularly large in Northern Norway. Business has gained much from the restructuring of prices following deregulation; however small companies and broadband users have played less of a part in this development.

Service delivery is conspicuously diff erent between the regions and more central areas, especially with respect to broadband, and to some degree when it comes to mobile telephony. Analyses indicate that the regime of competition has not worked equally well in all areas. In some cases increased competition has resulted in higher prices.

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COVERTHEENTIRECOUNTRY

By the summer of 2003, an estimated 65 per cent of the Norwegian population will be able to access the broadband network, primarily on the basis of copper technology (xDSL), (remote) cable and wireless technologies. The total market divides up like this:

• an estimated 77 to 78 per cent has xDSL

• 17 to 18 per cent have cable

• approx. 5 per cent have other technologies such as fi bre optics and wireless access

The market share for xDSL is expected to increase to around 80 per cent during the course of 2003, while cable is expected to experience a reduction in market share to around 15 per cent ²³. Telenor alone will cover about 64 per cent of subscribers through its ADSL service by the end of autumn 2003.

Expansion is particularly concentrated in urban areas, although a considerable number of local or regional initiatives exist.

20 Norwegian Post antd Telecommunication Authority, May 2003.

21 Norwegian Post and Telecommunication Authority

22 Eli Skogerbø/Tanja Storsul, “Implementering og reguleringseff ektivitet i nye teleregimer” (Implementation and the eff ectiveness of regulation in new telecommunication regimes), the SKIKT project, April/May 2003.

23 Source: Norsk Telecom AS Figure 4 Market shares for Telenor in the telecom market

1999-2002 as a percentage. Source: Norwegian Post and Telecommunications Authority, 2003

Figure 5 Technology share for broadband. Source: Norsk Telecom AS

Customer uptake

The autumn of 2002 and the spring of 2003 saw a transition from an expansion phase to an uptake phase. In the last six months, uptake by customers has been signifi cantly higher than the expansion of services, whereas customer uptake in 2002 did not keep pace with expansion.

The tempo of the development of the broadband network has mirrored the introduction of the dial-up Internet and ISDN well. However, there appears to be agreement that there is still considerable potential for further growth as far as companies, public enterprises, and private households are concerned.

In April 2003, an estimated 14 per cent of households and 13 per cent of companies were connected to the broadband network, and these fi gures are expected to increase considerably during the course of the year. At the start of 2003, there were approximately 215,000 broadband users in the country, and this fi gure is expected to climb to 400,000 before the end of the year.

23 per cent of the households that are connected to the Internet stated in February this year that they were connected to the Internet via broadband ADSL or faster means. At the same time ISDN is losing market share, though with 40 per cent of Internet users ISDN is still the commonest method of connection.

It continues to appear that those who acquire broadband have previously had ISDN and that those with the slowest speed connections do not purchase faster access. The regional diff erences remain. Households in Oslo/Akershus, where 35 per cent of households with the Internet state they have broadband access, are the most likely to have broadband. The regions with the lowest share of broadband users are Trøndelag and Northern Norway with 14 per cent²⁴.

Broadband in municipalities, sixth form colleges and health enterprises

The fi gure below indicates the proportion of public institutions with broadband connections, excluding hospitals and the nursing and care sector. The defi nition of broadband used here includes transmission speeds normally regarded as slower than broadband, because the institutions concerned can easily upgrade their connection to broadband speeds if they wish.

Using this comprehensive defi nition, more than half of all public institutions are connected to broadband, although there are considerable variations depending on the type of institution.

81 per cent of town halls are now connected to broadband. Many of these have chosen to rent lines which can sometimes have speeds as slows as 64 Kbit/s. As for the remaining 19 per cent, most of these have ISDN connections. This applies particularly to town halls in small municipalities. 35 per cent of town halls have connections with a capacity of between 2 and 10 Mbit/s.

53 per cent of libraries are now connected to broadband. The

24 TNS Gallup Interbuss 1 2003, 3/2002

Figure 6 Growth in various telecom products. Source: Norsk Telecom AS

Figure 7 Broadband usage for households and among companies with employees distributed per county for Q1 2003. Source: Norsk Telecom AS and Statistics Norway

remaining 47 per cent are mostly connected via ISDN. 44 per cent of libraries have a capacity of 128 Kbit/s or less. But only 19 per cent of library visitors use libraries with ISDN connections.

For fi bre optic connections, the picture is reversed. 19 per cent of libraries have fi bre optic connections, but these libraries serve 38 per cent of all those who use a library. In other words, ISDN is principally used by small libraries (libraries with few visitors), while the large libraries tend to use fi bre optic connections.

42 per cent of primary schools now have a broadband

connection. The remaining 58 per cent are mostly connected via ISDN. 53 per cent of primary schools have a capacity of 128 Kbit/s or less. The small schools, in particular, use ISDN while larger schools are generally connected via radio (9 per cent), fi bre optic cable (11 per cent) or rented lines (14 per cent).

If rented lines are counted as broadband, 92 per cent of sixth form colleges now have a broadband connection. ISDN is almost absent from sixth form colleges (7 per cent). These colleges have a high proportion of rented lines (49 per cent), but fi bre optic connections (22 per cent) and SDSL (17 per cent) are also well represented. 58 per cent of sixth form colleges have a capacity of between 2 and 10 Mbit/s.

One of the objectives in the eNorway Plan was that all hospitals should be able to connect to broadband in 2002. At the end of 2002, this objective was reached for 39 of the total 42 health enterprises. Work on a national health network has been based on the national IT Plan for 2001-2003, and the aim is that the network will be in place before the end of 2003. This national health network will consist of 5 regional health networks (owned by the regional health enterprises) and a central infrastructure (owned by the Directorate of Health and Social Aff airs (Sosial- og helsedirektoratet)) which connects the regional health networks together. The regional networks will link the health enterprises together and will also, as they are further developed, link the doctors’ surgeries in their region.

Nordic comparisons

The rolling out of broadband in the Nordic countries has come a long way, but there are signifi cant diff erences in the speed of these developments. In December 2002, Denmark and Iceland had a coverage of around 95 per cent, while Finland, Sweden and Norway had coverages of 75, 72 and 60 per cent respectively.

It is calculated that Norway will achieve close to 65 per cent coverage during 2003. This coverage is measured in terms of the number of private homes that have the opportunity to connect to broadband. The type of access technology varies somewhat between the Nordic countries, but xDSL dominates all the markets.

Prices in the Nordic countries

Norwegian Telecom AS has obtained prices from most broadband providers across the Nordic market. To provide the best overview, all prices contained in the graphs have been converted to illustrate the private and corporate segments respectively below.

The currency used here is the Euro to make comparison easier.

Prices here are for subsciptions on a rolling monthly basis, with no additional connection charges etc.

Figure 8 Broadband connection for local authority

institutions and sixth-form colleges. Source: ECON/Teleplan December 2002

Figure 9 Nordic households with broadband connection as a percentage. Source: Norsk Telecom AS

Figure 10 Price comparison broadband. Private market.

Source: Norsk Telecom AS

Prices in the private market are not straightforward. Icelandic prices are generally reasonable. Norway basically does not have any competition along the axes – 500 kbit/s – so there are fewer prices to relate to in this segment.

There is wider divergence in speed in the corporate market – and in price therefore. Icelandic prices are also very good here as well, and it would appear from the graph that Norwegian prices are somewhat higher than the equivalent prices in the other Nordic countries.

However, it is diffi cult to get a full picture of the complete range of prices as there are many variables and disparate products here. For example, the players operate under diff erent constraints or other usage limitations, subscription periods and subsidies, installation charges, transfer speed guarantees or even diff ering incoming and outgoing speeds. These comparisons in price can never be “fair” without an extremely painstakingly detailed investigation into every single product.

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As in many other countries, the introduction of electronic signatures (PKI) in Norway has proceeded slowly. This is partly because the market for e-signature solutions has not yet properly developed. At present there is only one supplier of e-signatures in the Norwegian market – ZebSign (owned by Telenor and The Norwegian Post Offi ce (Posten) in partnership), with a number of sales channels such as ErgoGroup or BuyPass AS. It was anticipated that the banks would have started to off er solutions based on the common infrastructure for BankID, but this has not yet happened.

Skandiabanken uses PKI for access to Internet banking for approximately 200,000 customers in Norway. For playing and paying on the Internet, Norsk Tipping has supplied solutions to around 50,000 households for e-signatures based on smart cards.

In addition, DnB uses PKI for access to Internet banking, but in a closed system. Telenor Mobil, in collaboration with DnB, off ers the SmartPay payment service which uses a PKI solution in the mobile telephone’s SIM card. Some individual municipalities are now experimenting with the use of this ´mobile PKI’ for signing electronic forms and for electronic case handling. In collaboration with ErgoGroup, the Post Offi ce is conducting trials with an

´electronic citizen card’ (electronic ID card) in Oppdal municipality.

One of the intended applications for this card will be the registering of voters for the municipal election in the autumn.

Rikstrygdeverket (the National Insurance Administration) has entered into a framework agreement with ErgoGroup for the delivery of PKI-based e-signatures to all the doctors’ surgeries, hospitals and other health institutions in the country. One of the applications of this solution will be the sending of doctors’

certifi cates for time off work to the Rikstrygdeverket. This will fully implemented on 12 May 2003.

Ongoing work to organize and coordinate the establishment

of a social infrastructure for e-signatures based on PKI is being undertaken in collaboration with the NHD and the AAD (Ministry of Labour and Administration), and with the support of PKI- Forum.²⁵ Work is in hand at AAD to establish a coordinating body for PKI in the public sector, which will start to operate in September.

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In February 2003, 27 per cent of households using the Internet stated that they had received a virus during the last 12 months.

This same fi gure for November 2002 was 27 per cent, then 20 per cent in February 2002 and 13 per cent in August 2001.²⁶ The corresponding fi gure for the EU is 23 per cent.²⁷ These fi gures show that there is a need among Internet users for a greater understanding of how to tackle viruses. Commercial surveys indicate that, among private and small customers, most viruses are transmitted via the Internet provider, and primarily aff ect Internet products from market-dominating niche-suppliers. ²⁸

IT security and the security culture

In May 2003 the Government approved a National Strategy for Information Security consisting of a prioritised list of measures to be implemented in the next 2-3 years for protecting critical IT infrastructures and systems, introducing a culture of security in Norwegian enterprises and preparing the way for the coordinated development and enforcement of a body of regulations concerning IT security. This strategy also includes a secondary strategy for the building up of a social infrastructure for e-signatures in Norway (see the section above), as a link in the establishment of confi dence and security in electronic commercial transactions and electronic services on the Internet.

25 http://www.pki-forum.no

26 TNS Gallup, Interbuss 1/2003

27 The EU Commission’s Eurobarometer, Eurofl ash 125, June 2002.

28 Source: VirusFree/ Itegra <http://www.virusfree.no/statistics.asp >

Figure 11 Country of origin for for unsolicited mapping of potential safety holes in the major Norwegian networks.

Source: VDI